India and China Take a Popular Fund on a Wild Ride

The eye-catching ups and downs of India and China have dominated the emerging-markets storyline in recent years. First, a strong multiyear rally pushed India’s equity-market valuations to levels that many fund managers considered ridiculously steep. Meanwhile, China’s stocks floundered. Then around mid-2024, India lost favor, while encouraging news from China sent that market soaring. Earlier this year, though, their positions reversed again.

These gyrations resulted in enormous performance gaps between the two markets, affecting the returns of most—if not all—emerging-markets funds. None likely felt the impact as much as GQG Partners Emerging Markets Equity GQGIX.

A look at this offering’s roller-coaster performance over the past few years can shine a light on how out-of-the-ordinary country weights can have an outsize impact when markets behave in extreme ways.

The story may also reassure those shareholders of the fund who were alarmed by the depth of its late 2024/early 2025 underperformance. More broadly, it can help investors of other strategies to weather—or at least better evaluate—the uncomfortable times when their previously reliable funds hit a rough patch.

A Free-Thinker at the Helm

A key reason why GQG Partners Emerging Markets Equity stands out from peers is manager Rajiv Jain’s willingness to reject consensus thinking. Sometimes he makes rapid, jarring shifts, but in many cases, Jain will hold an uncommon stance for years.

One example: For much of his long career at GQG and before that, Vontobel, his portfolios have featured hugely overweighted stakes in India. A substantial underweighting in China started to develop about four years ago and has deepened since.

India: No Index-Hugger Here

Favorable macroeconomics along with the appealing traits of individual companies led to Jain’s supersized India stakes.

For instance, Jain believes that the government’s wide-ranging, long-lasting commitment to bolster the country’s infrastructure creates opportunities. But he didn’t just pick the most popular names. He targeted six infrastructure companies from the Adani conglomerate in early 2023 after a short-seller’s scathing report sent their prices tumbling and GQG‘s research concluded that the panic was overblown. GQG felt that the entrenched positions of the Adani firms would serve them well as the government’s program proceeded. Meanwhile, ITC, which holds a dominant share of India’s tobacco market, has been a longtime favorite.

The result has been a long-standing overweighting that became even more extreme in recent years.

China: From Optimism to Concern

By contrast, Jain and his comanagers soured on China about four years ago and have retained that view ever since. Not only have they had trouble finding suitable companies at the right price, but they also viewed with concern a variety of government policies. Also, like many managers, they were alarmed by the country’s widespread real estate crisis, the weak level of consumer spending, and worsening relations with the United States.

Many emerging-markets strategies have reduced their China stakes in recent years, but GQG acted more decisively than most. While the China weightings in the index and the category have mostly hovered between 25% and 35%, GQG Partners Emerging Markets Equity’s stake has been half that amount, or less, since late 2021.

The Impact

For the three years through mid-2024, the India market was a darling of global investors, while China, whose post-covid economic surge quickly petered out, lost favor. The resulting performance gap between the two markets is stunning. From mid-2021 through mid-2024, India rose 13.5%, annualized, while China sank 16.6%.

In a difficult stretch for most emerging-markets strategies, GQG benefited from its unconventional weightings. The fund posted one of the best performances in the category in this period, outpacing the group average by 8 percentage points on an annualized basis.

The fund’s wildly unorthodox India and China weightings weren’t the only factors behind that impressive showing. But Morningstar attribution figures confirm they played a major role.

Trading Places

Market trends don’t last forever. That one came to a halt around mid-2024. Investors suddenly started dumping their India stocks—those hefty valuations finally became untenable—just as encouraging signs from China’s government buoyed views on that market. From mid-2024 through February 2025, the two markets’ fortunes diverged even more dramatically than before. The performance gap this time was remarkable: 43 percentage points.

This time, the GQG fund’s boldly out-of-the-mainstream stance did it no favors. GQG Partners Emerging Markets Equity fared far worse than its peers, posting an 11.7% loss that fell nearly 12 percentage points behind its average peer and 13 points behind the index.

Beyond the Country Weight

While GQG has no problem owning a market’s big names, it will also hold less popular stocks. That differentiation has usually paid off, but it can also bite, as it did this time.

Most notably, as the Morningstar India Target Market Exposure Index was falling 16% in this period, the six Adani companies in the portfolio, whose rebound had boosted performance in the earlier stretch, tumbled much further than the index. Their declines ranged from 27% (Adani Ports & Special Economic Zone) to 57% (Adani Green Energy).

Another Reversal

Just as concerns about the GQG fund’s lackluster performance might have mounted, market trends again changed course. In March 2025—even before tariff turmoil struck global markets—India outperformed China by 8 percentage points. After the April turbulence, the gap had widened to nearly 17 percentage points over just two months.

Not surprisingly, GQG Partners Emerging Markets Equity outperformed.

Note, however, that while the fund topped the index and the category average in this period, the margin was much smaller this time—just over 1 percentage point. That’s less than one would expect if these two country weightings alone were driving its returns.

That offers a healthy reminder not to take these correlations too far when evaluating a fund’s performance. While the India and China stakes undeniably affected its returns, more than half of the GQG fund’s portfolio lies outside those countries. And as noted earlier, even in those markets, its holdings don’t mirror the indexes. Rajiv Jain would not have amassed an outstanding long-term record over more than two decades at two different firms if he were merely making country calls.

Conclusion

In the end, country weightings, like sector data, should be viewed as only one tool among many for investors to use when evaluating the past performance and future prospects of a fund. At times, though, it can be especially valuable. It can provide a partial explanation for periods of outperformance and, more important, offer reassurance to investors during those times when it might seem, on the surface, that a good fund has lost its touch.